SECURITIES PURCHASE AGREEMENT By and Between MORLEX, INC. and THE INVESTORS Dated as of March __, 2008
By
and Between
MORLEX,
INC.
and
THE
INVESTORS
Dated
as of March __, 2008
SECURITIES
PURCHASE AGREEMENT,
dated
as of _____, 2008 (this “Agreement”),
by
and among Morlex, Inc. (the “Company”),
and
each of the persons and entities listed on Schedule
A
hereto
(each an “Investor”
and
collectively the “Investors”).
WITNESSETH:
WHEREAS,
the
Company desires to issue and sell to the Investors, and the Investors desire
to
purchase from the Company, Shares (as defined below).
NOW,
THEREFORE,
in
consideration of the conditions and promises herein contained, the parties
hereto agree as follows:
1. DEFINITIONS.
For
purposes of this Agreement, unless the context otherwise requires, the following
terms shall have the following respective meanings:
“Agreement”
has
the
meaning provided in the preamble.
“Ancillary
Agreements”
means
the Escrow Agreement, the Registration Rights Agreement and any other agreement
or instrument to which the Company is a party, the execution and delivery of
which are contemplated hereby or thereby.
“Business
Day”
means
a
day other than a Saturday or Sunday or other day on which commercial banks
in
New York, New York are authorized or required to close.
“Bylaws”
means
the Bylaws of the Company, as in effect on the date of this
Agreement.
“Claim”
has
the
meaning provided in Section 7.3(b).
“Closing”
has
the
meaning provided in Section 2.2(a).
“Closing
Date”
shall
be ________ and such other dates as determined by the Company.
“Code”
means
the United States Internal Revenue Code of 1986, as amended.
“Common
Stock”
has
the
meaning provided in Section 3.5(a).
“Company”
has
the
meaning provided in the preamble.
“Company’s
Knowledge”
means
the actual knowledge of the members of the Company’s executive
management.
“Contracts”
has
the
meaning provided in Section 3.7.
“Financial
Statements”
has
the
meaning provided in Section 3.16.
“GAAP”
means
generally accepted accounting principles as in effect from time to time in
the
United States and consistently applied and maintained throughout the periods
indicated. Whenever any accounting term is used herein which is not otherwise
defined, it shall have the meaning ascribed thereto under GAAP.
“Indemnified
Party”
has
the
meaning provided in Section 7.3(b).
“Indemnifying
Party”
has
the
meaning provided in Section 7.3(b).
“Indemnitee
Losses”
has
the
meaning provided in Section 7.3(a).
“Interim
Financial Statements”
has
the
meaning provided in Section 3.16.
“Investor”
and
“Investors”
have
the meanings provided in the preamble.
"Investor
Agent"
means
J. Gunnar Co., LLC, as representative for each of the Investors.
“Liabilities”
has
the
meaning provided in Section 3.16.
“Majority
Investors”
means
Investors who hold two-thirds (2/3) of the then-outstanding principal amount
of
the Shares.
“Material
Adverse Effect”
means
a
material adverse effect on the Company’s business, assets, properties, financial
condition or results of operation, or on the ability of the Company to perform
its obligations under and consummate the transactions contemplated by this
Agreement and the Ancillary Agreements.
“Material
Contracts”
has
the
meaning provided in Section 3.7.
“Person”
means
any natural person, corporation, partnership, limited liability company,
association, government, governmental agency or other entity, whether acting
in
an individual, fiduciary or other capacity.
"Placement
Agent"
means
▇▇▇▇▇▇ ▇▇▇▇▇▇ & Co., LLC.
“Purchase
Price”
has
the
meaning provided in Section 2.1(a).
“Shares”
means
common stock, par value $__ per share, of the Company offered to the investors
hereunder.
“Tax”
means
any federal, state, local or foreign income, gross receipts, license, payroll,
employment, excise, severance, stamp, occupation, premium, windfall profits,
environmental, customs duties, capital stock, franchise, profits, withholding,
social security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or
add-on-minimum, estimated or other tax of any kind whatsoever, including any
interest, penalty or addition thereto, whether disputed or not.
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“Tax
Return”
means
any return, declaration, report, claim for refund, or information return or
statement relating to Taxes, including any schedule or attachment thereto and
any amendment thereof.
2.
PURCHASE
AND SALE OF UNITS.
2.1 Sale
and Issuance of Units.
(a) The
Placement Agent agree to act as the Company’s exclusive placement agent with
respect to the issuance and sale by the Company of (i) up to 2,700,000 shares
of
its common stock, at $0.75 per share, or $2,025,000, on the “best efforts, all
or none” basis (the “Minimum
Offering”),
(ii)
up to 2,700,000 shares of its common stock, also at $0.75 per share, or
$2,025,000, on the “best efforts” basis for a maximum offering of $4,050,000
(the “Maximum Offering”),
and
(iii) up to 2,700,000 shares of its common stock, at $0.75 per share, or
$2,025,000, on the “best efforts” basis with respect to this over-allotment
amount.
(b) Subject
to the terms and conditions set forth in this Agreement, the Company agrees
to
issue and sell to the Investor whose name appears on Schedule
A
attached
hereto, and each Investor agrees to purchase from the Company the Shares as
set
forth on Schedule
A
at the
purchase price of $0.75 per share purchased hereunder (the “Purchase
Price”).
The
minimum investment hereunder shall be 75,000 Shares or $56,250 (the
“Minimum
Subscription”).
(c) The
Shares shall have the rights, preferences and privileges set forth in the
Company’s organizational documents as well as in the Form Registration Rights
Agreement attached hereto as Exhibit
A
(the
“RRA”).
2.2 Closing.
(a) Closing.
Subject
to the terms and conditions of this Agreement, at the Closing, the Company
will
sell to the Investors, severally and not jointly, and the Investors, severally
and not jointly, will purchase from the Company, the Shares upon payment in
full
of the Purchase Price. At the Closing, the Company shall deliver to each
Investor stock certificates representing the Shares that such Investor is
purchasing, as set forth on Schedule
A,
against
payment of the Purchase Price therefor by certified or bank check or wire
transfer (to such account as the Company may designate to the
Investors).
(b) Place
of Closing.
The
purchase and sale of the Shares (the “Closing”)
shall
take place on the Closing Date at the offices of _____, ______ or at such other
place as the Company and the Investors shall mutually agree.
2.3 Use
of Proceeds. The
Company shall use the proceeds of the sale of the Shares hereunder: (a) to
complete its acquisition of Ad Authority, Inc. in the aggregate purchase price
of $_______, (e) for general corporate purposes in the amount of approximately
$_______.
2.4 Placement
Agent Compensation. At
the
Closing, the funds received in respect of the Shares sold hereunder will be
forwarded to the Company, net of the Placement Agent’s commissions and expenses
as set forth in the Placement Agent Agreement executed by and between the
Company and the Placement Agent dated as of March ___, 2008.
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3. REPRESENTATIONS,
WARRANTIES AND COVENANTS OF THE COMPANY.
The
Company hereby represents, warrants and covenants to each Investor as
follows:
3.1 Organization;
Good Standing; Qualification.
The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of ____, has all requisite corporate power and
authority to own and operate its properties and assets and to carry on its
business as now conducted and as presently proposed to be conducted, to execute
and deliver this Agreement and each Ancillary Agreement, to issue and sell
the
Shares and to register such Shares in accordance with the terms of the RRA
and
to carry out the provisions of this Agreement and each Ancillary Agreement.
The
Company is duly qualified and is authorized to transact business and is in
good
standing as a foreign corporation in each other jurisdiction in which the
failure to so qualify, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect.
3.2 Authorization.
All
corporate action on the part of the Company, its officers, directors and
stockholders necessary for the authorization, execution and delivery by the
Company of this Agreement and each Ancillary Agreement, the performance of
all
obligations of the Company hereunder and thereunder and the authorization,
issuance (or reservation for issuance), sale and delivery of the Shares has
been
taken, and this Agreement constitutes, and each Ancillary Agreement, when
executed and delivered, will constitute, valid and legally binding obligations
of the Company, enforceable in accordance with their respective terms except
(i)
as limited by applicable bankruptcy, insolvency, reorganization, moratorium
and
other laws of general application affecting enforcement of creditors’ rights
generally, and (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies. The sale of the
Shares is not and will not be, subject to any preemptive rights or rights of
first refusal that have not been properly waived or complied with.
3.3 Valid
Issuance of Common Stock. The
Shares have been duly and validly reserved for issuance and will be duly and
validly issued, fully paid and nonassessable, and will be free of restrictions
on transfer other than restrictions on transfer under applicable state and
federal securities laws.
3.4 Consents.
No
consent, approval, qualification, order or authorization of, or filing with,
any
Person is required on the part of the Company in connection with the Company’s
valid execution, delivery or performance of this Agreement, the offer, sale
or
issuance of the Shares.
3.5 Capitalization
and Voting Rights.
(a) The
authorized capital of the Company consists of _____ shares of common stock,
par
value $____ per share (“Common
Stock”),
of
which _____ are issued and outstanding, and _______ shares of preferred stock,
par value $_____ per share (“Preferred
Stock”),
of
which no shares are issued and outstanding.
(b) The
outstanding shares of Common Stock are owned by as set forth on Schedule
3.5(a).
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(c) The
outstanding shares of Common Stock and Preferred Stock have been duly authorized
and validly issued, are fully paid and nonassessable, and were issued in
accordance with the registration or qualification provisions of the Securities
Act and any relevant state securities laws or pursuant to valid exemptions
therefrom.
(d) Except
as
set forth on Schedule 3.5(d), there are no outstanding options, warrants, rights
(including conversion or preemptive rights and rights of first refusal), phantom
stock, stock appreciation rights, proxy or stockholder agreements or agreements
of any kind for the purchase or acquisition from the Company of any of its
securities. No stock plan, stock purchase, stock option or other agreement
or
understanding between the Company and any holder of any equity securities of
the
Company or rights to purchase equity securities of the Company provides for
acceleration or other changes in the vesting provisions or other terms of such
securities, as the result of any merger, sale of stock or assets, change in
control or other similar transaction by the Company. The Company is not a party
or subject to any agreement or understanding and, to the Company’s Knowledge,
there is no agreement or understanding that affects or relates to the voting
or
giving of written consents with respect to any securities of the Company or
the
voting by a director of the Company.
3.6 No
Subsidiaries or Predecessors.
(a) The
Company does not own or control, directly or indirectly, any interest in any
other corporation, partnership, limited liability company, association or other
business entity. The Company is not a participant in any joint venture,
partnership or similar arrangement.
(b) The
Company has no predecessors, whether by way of succession by merger,
consolidation or other business combination with another entity or transfer
of
all or substantially all of another entity’s assets, or otherwise.
3.7 Contracts
and Other Commitments. Schedule
3.7(a) lists all written contracts, agreements, leases, commitments,
instruments, arrangements and understandings (“Contracts”),
to
which the Company is a party which require payments by either party thereto
in
excess of $25,000 or are otherwise material to the Company (the “Material
Contracts”),
except for those contracts which arose in the ordinary course of business.
The
Material Contracts are valid and legally binding on the Company, are in full
force and effect and are enforceable in accordance with their respective terms.
The Company has not assigned, mortgaged, pledged, encumbered or otherwise
hypothecated any of its right, title or interest under the Material Contracts.
Except as set forth on Schedule 3.7(b), neither the Company nor, to the
Company’s Knowledge, any other party thereto is in violation of or in default in
respect of any Material Contract. No written notice or other written
communication has been received by the Company claiming any such violation
or
default by the Company.
3.8 Related
Party Transactions. Except
as
set forth on Schedule 3.8(a), no employee, officer, director or stockholder
of
the Company or member of his or her immediate family is indebted to the Company,
nor is the Company indebted (or committed to make loans or extend or guarantee
credit) to any of them, other than (i) for payment of salary for services
rendered, (ii) reimbursement for reasonable expenses incurred on behalf of
the
Company, and (iii) for other standard employee benefits made generally available
to all employees (including stock option agreements outstanding under any stock
option plan approved by the Board of Directors of the Company). Except as set
forth on Schedule 3.8(b), to the Company’s Knowledge, none of such persons has
any direct or indirect ownership interest in any entity with which the Company
is affiliated or with which the Company has a business relationship, or any
entity that competes with the Company, except that employees, officers,
directors or stockholders of the Company and members of their immediate families
may own stock (not in excess of 5% of the outstanding stock) in publicly traded
companies that may compete with the Company. Except as set forth on Schedule
3.8(c), to the Company’s Knowledge, no employee, officer, director or
stockholder of the Company or member of his or her immediate family is, directly
or indirectly, interested in any Contract to which the Company is a
party.
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3.9 Registration
Rights. Except
as
provided in Section 2.4 hereof, the Company is not under any obligation and
has
not granted to any Person any rights to register under the Securities Act any
of
its presently outstanding securities or any of its securities that may
subsequently be issued.
3.10 Permits. The
Company has all franchises, permits, licenses, approvals and similar
authorizations necessary for the conduct of its business as now being conducted
by it, the lack of which, individually or in the aggregate, could reasonably
be
expected to have a Material Adverse Effect, and to the Company’s Knowledge, it
can obtain any such authorization for the conduct of its business as presently
planned to be conducted. The Company is not in default in any material respect
under any of such franchises, permits, licenses or other similar
authorizations.
3.11 Compliance. The
Company is not in violation or default of any provision of its Articles of
Incorporation, as amended, or By-laws or in material default of any provision
of
any mortgage, indenture, agreement, instrument or contract to which it is a
party or by which the Company or its assets or properties are bound or of any
federal, state or local judgment, order, writ, decree, statute, rule, or
regulation applicable to the Company or its business, except for such defaults
which would not result in a Material Adverse Effect to the Company. The
execution, delivery and performance by the Company of this Agreement and each
Ancillary Agreement, and the consummation of the transactions contemplated
hereby and thereby, will not result in any such violation or default or be
in
material conflict with or constitute, with or without the passage of time or
giving of notice, either a material default under any such provision or an
event
that results in the creation of any material lien, charge or encumbrance upon
any assets or properties of the Company (other than Permitted Encumbrances)
or
to the Company's knowledge, the suspension, revocation, impairment, forfeiture
or nonrenewal of any material franchise, permit, license, approval or
authorization applicable to the Company, its business or operations, or any
of
its assets or properties.
3.12 Litigation.
Except
as
set forth on Schedule 3.12, there is no action, suit, proceeding or
investigation pending or, to the Company’s Knowledge, threatened against or
affecting the Company that questions the validity of this Agreement or any
Ancillary Agreement or the right of the Company to enter into such agreements
and instruments, or to consummate the transactions contemplated hereby or
thereby, or that would result, either individually or in the aggregate, in
any
Material Adverse Effect. The foregoing includes, without limitation, any action,
suit, proceeding or investigation pending or to the Company's knowledge
threatened involving the prior employment of any of the Company’s employees,
their use in connection with the Company’s business of any information or
techniques allegedly proprietary to any of their former employers, their
obligations under any agreements with former employers. The Company is not
a
party to or, to the Company’s Knowledge, named in or subject to any order, writ,
injunction, judgment or decree of any court, government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or that the Company currently intends to
initiate.
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3.13 Complaints,
Recalls. The
Company has received no customer complaints and has not issued any recalls
with
respect to alleged defects in its products (or the design thereof).
The
Company has not received any complaint, inquiry or other communication from
the
Federal Trade Commission or any other federal or state regulatory agency
regarding the production, marketing, sale or distribution of the Company’s
products.
3.14 Offering.
Subject
to the truth and accuracy of each Investor’s representations set forth in this
Agreement, the offer, sale and issuance of the Shares as contemplated by this
Agreement are exempt from the registration requirements of the Securities Act,
and neither the Company nor any agent acting on its behalf will take any action
hereafter that would cause the loss of such exemption.
3.15 Title
to Property and Assets; Leases. Except
(i) for liens for current taxes not yet delinquent, (ii) for liens imposed
by
law and incurred in the ordinary course of business for obligations not past
due
to carriers, warehousemen, laborers, materialmen and the like, (iii) for liens
in respect of pledges or deposits under workers’ compensation laws or similar
legislation or (iv) for minor defects in title, none of which, individually
or
in the aggregate, materially interfere with the use of such properties and
assets (“Permitted
Encumbrances”),
the
Company has good and marketable title to its properties and assets free and
clear of all mortgages, liens, claims and other encumbrances. With respect
to
the properties and assets it leases, the Company is in compliance with such
leases and holds a valid leasehold interest free of any mortgages, liens, claims
or encumbrances, subject to clauses (i)-(iv) above.
3.16 Financial
Statements and Auditors. Schedule
3.16(a) contains the Company’s unaudited financial statements (balance sheet and
statement of operations, statement of stockholders’ equity and statement of cash
flows, including notes thereto) at ____ and ____, and for the periods then
ended
(collectively the “Financial
Statements”).
The
Financial Statements have been prepared on the accounting basis used by the
Company for income tax purposes, which is a comprehensive basis of accounting
other than GAAP, and do not contain all footnotes required by GAAP. The
Financial Statements fairly present in all material respects the financial
condition and results of operations of the Company as of the dates, and for
the
periods, indicated therein. Except as set forth in the Financial Statements
and
as incurred in the ordinary course of business since _____, the Company has
no
liabilities or obligations of any nature whatsoever, whether known or unknown,
whether accrued, absolute, contingent or otherwise, and whether due or to become
due (“Liabilities”),
nor
to the Company’s Knowledge is there any basis for the assertion against the
Company of any Liabilities. The Company is not a guarantor or indemnitor of
any
indebtedness of any other Person. The Company maintains and will continue to
maintain a standard system of accounting established and administered in
accordance with GAAP.
3.17 Absence
of Certain Changes. Except
as
set forth on Schedule 3.17, since ___, there has not been with respect to the
Company:
(a) any
change in the business, assets, properties, liabilities, financial condition,
results of operations or prospects of the Company, except changes in the
ordinary course of business that have not had, and could not reasonably be
expected to have, individually or in the aggregate, a Material Adverse
Effect;
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(b) any
damage, destruction or loss, whether or not covered by insurance, materially
and
adversely affecting the business, assets, properties, financial condition,
results of operations or material prospects of the Company (as such business
is
presently conducted and as it is presently proposed to be
conducted);
(c) any
waiver or compromise by the Company of a material right or of a material debt
owed to it;
(d) any
satisfaction or discharge of any mortgage, lien, claim or other encumbrance
or
payment of any obligation by the Company, except in the ordinary course of
business and that is not material to the business, assets, properties, financial
condition, results of operations or prospects of the Company (as such business
is presently conducted and as it is presently proposed to be
conducted);
(e) any
material change, termination or amendment to a Material Contract;
(f) any
material change in any compensation arrangement or agreement with any employee,
officer, director or stockholder;
(g) any
sale,
assignment or transfer of any material patents, trademarks, copyrights, trade
secrets or other intangible assets;
(h) any
resignation or termination of employment of any officer or key employee of
the
Company, and to the Company’s Knowledge, any impending resignation or
termination of employment of any such officer or key employee;
(i) receipt
of notice that there has been a loss of, or material order cancellation by,
any
material customer of the Company;
(j) any
mortgage, pledge, transfer of a security interest in, lien or other encumbrance
with respect to any of the Company’s properties or assets, except liens for
taxes not yet due or payable or contested by the Company in good
faith;
(k) any
loans
or guarantees made by the Company to or for the benefit of its employees,
officers, directors or stockholders, or any members of their immediate families,
other than travel advances and other advances made in the ordinary course of
its
business;
(l) any
declaration, setting aside, or payment of any dividend or other distribution
in
respect of any of the Company’s capital stock, or any direct or indirect
redemption, purchase or other acquisition by the Company of any such capital
stock;
(m) to
the
Company’s Knowledge, any other event or condition of any character that would
materially and adversely affect the business, assets, properties, financial
condition, results of operations or material prospects of the Company (as such
business is presently conducted and as it is presently proposed to be
conducted); or
(n) any
agreement or commitment by the Company to do any of the things described in
this
Section 3.17.
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3.18 Intellectual
Property.
(a) The
Company owns or possesses sufficient legal rights to all patents, trademarks,
service marks, trade names, copyrights, trade secrets, licenses, information,
designs, computer software, know-how and proprietary rights and processes
necessary for its business as presently conducted and as proposed to be
conducted without any conflict with, or infringement of the rights of, other
Persons. Neither the Company nor any of its licensors is a party to any
litigation involving Company Intellectual Property and/or Licensed Intellectual
Property (collectively, “Intellectual
Property”).
The
Company is not a party to any opposition relating to the intellectual property
of any other Person.
(b) Schedule
3.18(A) contains a complete list of all patents, trademarks, service marks
and
copyrights, and pending applications with respect thereto, owned by the Company
(collectively, “Company
Intellectual Property”).
All
of the Company Intellectual Property is owned by the Company free and clear
of
all liens and encumbrances. From the Company’s inception, there have been no
challenges to the Company’s ownership rights in Company Intellectual Property.
Schedule 3.18(B) contains a complete list of all patents, trademarks, service
marks and copyrights, and pending applications with respect thereto, licensed
to
the Company (collectively, “Licensed
Intellectual Property”).
Except as set forth on Schedule 3.18(C), all of the Licensed Intellectual
Property is exclusively licensed to the Company for all uses necessary for
the
Company’s business as now conducted and as currently proposed to be conducted.
The Company is not in material breach of any agreement relating to Licensed
Intellectual Property. To the Company's Knowledge, no third party is infringing
or otherwise violating the Intellectual Property. Schedule 3.18(D) contains
a
complete list of all agreements under which the Company is licensed or is
otherwise permitted, or licenses or otherwise permits a third party, to use
any
of the Intellectual Property. To the Company’s Knowledge, the Company’s business
as now conducted and as proposed to be conducted does not infringe, or conflict
with, any patents, trademarks, services marks, trade names, copyrights, trade
secrets or other proprietary rights or processes of any other Person. Except
as
set forth on Schedule 3.18(E) within the last 5 years, the Company has not
received any notice or claim, written or oral, that its business as now
conducted or as proposed to be conducted infringes, or conflicts with, any
patents, trademarks, service marks, trade names, copyrights, trade secrets
or
other proprietary rights or processes of any other Person. All of the issued
patents within Intellectual Property are valid and enforceable. No third party
is challenging or has challenged the validity or enforceability of the
Intellectual Property. None of the issued patents within Intellectual Property
has expired. Each of the pending patent applications within Intellectual
Property was properly filed and is being diligently prosecuted. None of the
pending patent applications within Intellectual Property is under final
rejection. There are no interferences or oppositions pending or to the Company's
Knowledge contemplated with respect to any patents or patent applications within
Intellectual Property. None of the issued patents within Intellectual Property
has been, or presently is, the subject of a reissue proceeding. None of the
issued patents within Intellectual Property has been, or presently is, the
subject of a reexamination proceeding. There have been no inventorship
challenges with respect to any pending patent application or issued patent
within Intellectual Property.
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(c) To
the
Company's Knowledge, none of its employees is obligated under any contract
(including licenses, covenants or commitments of any nature) or other agreement,
or subject to any judgment, decree or order of any court or administrative
agency, that would interfere with the use of such employee’s best efforts to
promote the interests of the Company or that would conflict with the Company’s
business as presently conducted or as proposed to be conducted. Neither the
execution nor delivery of this Agreement, nor the consummation of the
transactions contemplated hereby, nor the carrying on of the Company’s business
by the employees of the Company, nor the conduct of the Company’s business as
presently conducted or as currently proposed to be conducted, will, to the
Company’s Knowledge, conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any of such employees is now obligated.
To
the Company’s Knowledge, it is not nor will it be necessary to use any
inventions of any of its employees (or persons it currently intends to hire
as
employees) made prior to their employment by the Company.
3.19 Employees;
Employee Compensation. There
is
no strike, labor dispute or union organization activities pending or to the
Company’s Knowledge threatened with respect to the Company’s employees. None of
the Company’s employees belongs to any union or collective bargaining unit. The
Company has complied in all material respects with all applicable federal,
state
and local equal opportunity and other laws related to employment. Except as
set
forth on Schedule 3.19, the Company is not a party to any, employment contract,
or bound by any currently effective, and has never maintained or contributed
to
deferred compensation agreement, bonus plan, incentive plan, profit sharing
plan, retirement agreement, or other employee compensation or benefit plan
or
agreement. To the Company’s Knowledge, no officer or key employee intends to
terminate his or her employment with the Company.
3.20 Tax
Returns, Payments and Elections.
(a) The
Company has filed all Tax Returns which are required to be filed by it, except
for those Tax Returns listed on Schedule 3.20, as to which the Company has
obtained presently effective extensions, and the Company has not received notice
from the Internal Revenue Service of intent to terminate any such extension.
To
the Company's knowledge, such Tax Returns are true, correct and complete in
all
material respects. All Taxes owed by the Company, whether or not shown on any
Tax Return, have been timely paid, except with respect to Taxes which the
Company is challenging in good faith and which, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
The Tax Returns of the Company have not been audited by the Internal Revenue
Service or other applicable Tax authority, and no controversy with respect
to
Taxes of any type is pending or, to the Company’s Knowledge, threatened. Since
the date of the Financial Statements, the Company has made adequate provision
on
its books of account for all Taxes, assessments and governmental charges with
respect to its business, assets, properties and operations for such
period.
(b) The
Company has never been an S corporation within the meaning of Sections 1361
and
1362 of the Code at any time during its existence. The Company has never been
the common parent or a member of any affiliated group of corporations filing
a
consolidated federal income tax return. The Company is not a party to any tax
sharing agreement or other arrangement pursuant to which it could be liable
for
any Taxes of any Person. The Company has not filed a consent under Section
341(f) of the Code regarding collapsible corporations.
(c) The
Company has withheld and paid all Taxes required to have been withheld and
paid
with respect to amounts paid or owing to any employee, independent contractor,
creditor, stockholder or other third party. All independent contractors are
properly classified as such.
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3.21 Insurance.
Schedule
3.21 contains a description of each insurance policy maintained by the Company
(or which names the Company as an additional insured) with respect to its
properties, assets and business, or with respect to any key employees of the
Company, and each such policy is presently in full force and effect. The Company
is not in default with respect to any insurance policy maintained by
it.
3.22 Environmental
and Safety Laws. The
Company, the operation of its business, and any real property that the Company
owns, leases or otherwise occupies or uses (the “Premises”)
are to
the Company’s Knowledge in material compliance with all applicable Environmental
Laws and orders or directives of any governmental authorities having
jurisdiction under such Environmental Laws. For the purposes of this Agreement,
the term “Environmental Laws” shall mean any federal, state or local law or
ordinance or regulation pertaining to the protection of human health or the
environment, including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. Sections 9601, et seq.,
the
Emergency Planning and Community Right-to-Know Act, 42 U.S.C. Sections 11001,
et
seq., and the Resource Conservation and Recovery Act, 42 U.S.C. Sections 6901,
et seq.
3.23 Real
Property Holding Corporation. The
Company is not and has never been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code and any
regulations promulgated thereunder.
3.24 Foreign
Corrupt Practices Act. The
Company has not taken any action which would cause it to be in violation of
the
Foreign Corrupt Practices Act of 1977, as amended, or any rules and regulations
thereunder. To the Company’s Knowledge, there is not now, and there has never
been, any employment by the Company of, or beneficial ownership in the Company
by, any governmental or political official in any country in the
world.
3.25 Brokers
or Finders.
Except
for the Placement Agents and as otherwise set forth in Schedule 3.25, there
is
no investment banker, broker, finder or other intermediary that has been
retained by or is authorized to act on behalf of the Company who might be
entitled to any fee or commission from the Company or any of its Affiliates
in
connection with the transactions contemplated by this Agreement.
3.26 Disclosure.
Neither
this Agreement nor any Ancillary Agreement nor any written statement or
certificate made or delivered by or on behalf of the Company in connection
herewith contains any untrue statement of a material fact or omits to state
a
material fact necessary to make the statements herein or therein not
misleading.
4. REPRESENTATIONS
AND WARRANTIES OF THE INVESTORS.
Each
Investor hereby represents, severally and not jointly, to the Company as
follows:
4.1 Authorization.
Such
Investor has the requisite power and authority to enter into this Agreement
and
the exhibits and schedules attached hereto and each Ancillary Agreement to
which
such Investor is a party, to perform its obligations hereunder and thereunder
and to consummate the transactions contemplated hereby and thereby. This
Agreement constitutes, and each Ancillary Agreement to which such Investor
is a
party, when executed and delivered, will constitute, a valid and legally binding
obligation of such Investor, enforceable in accordance with their respective
terms except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally, and (ii) as limited by laws relating
to the availability of specific performance, injunctive relief or other
equitable remedies.
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4.2 Investment.
The
Shares to be purchased by such Investor will be purchased for investment for
such Investor’s own account, not as a nominee or agent, and not with a view to
the resale or distribution of the Shares.
4.3 Accredited
Investor. Such
Investor is an “Accredited Investor” as that term is defined in Rule 501 of
Regulation D promulgated under the Securities Act of 1933, as amended (the
“Securities
Act”).
4.4 Access
to Information.
Such
Investor has received, read carefully and is familiar with this Agreement and
the Company’s business, plans and financial condition and the terms of the offer
and sale of the Shares. Such Investor has received all materials which have
been
requested by such Investor, has had a reasonable opportunity to ask questions
of
the Company and its representatives; and the Company has answered all inquiries
that such Investor or its representatives have put to it. Such Investor has
had
access to all additional information necessary to verify the accuracy of the
information set forth in this Agreement and any other materials furnished with
this Agreement, and has taken all the steps necessary to evaluate the merits
and
risks of an investment as proposed under this Agreement.
4.5 Experience
and Knowledge of Investor. Such
Investor or its purchaser representative has such knowledge and experience
in
finance, securities, investments and other business matters so as to be able
to
protect the interests of such Investor in connection with this transaction,
and
such Investor's investment in the Company under this Agreement is not material
when compared to its total financial capacity.
4.6 General
Solicitation. Such
Investor is not subscribing for the Shares as a result of or subsequent to
any
advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television or radio
or on
the internet or any web-site, or presented at any seminar or meeting, or any
solicitation of a subscription by a person other than a representative of the
Company or the Placement Agent with which the Investor had a pre-existing
relationship in connection with investments in securities
generally.
4.7 Restricted
Securities. Such
Investor understands that the Shares may not be sold, transferred or otherwise
disposed of without registration under the Securities Act or an exemption
therefrom.
4.8 Legend.
To
the
extent applicable, each certificate or other document evidencing any of the
Shares shall be endorsed with the legend in the form set forth
below:
“THE
SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT
OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR
HYPOTHECATED UNLESS REGISTERED UNDER SUCH ACT, OR UNLESS THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL OR OTHER EVIDENCE SATISFACTORY TO THE COMPANY
THAT AN EXEMPTION THEREFROM IS AVAILABLE.”
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4.9 Risk
Factors. Such
Investor recognizes that the investment in the Company involves significant
risks. Such Investor has read and understands the risk factors set forth in
Exhibit
B
attached
hereto. Such Investor can afford to bear such risks, including, without
limitation, the risk of losing the entire investment.
4.10 Brokers
or Finders.
There
is no investment banker, broker, finder or other intermediary that has been
retained by or is authorized to act on behalf of such Investor who might be
entitled to any fee or commission from such Investor or any of its Affiliates
in
connection with the transactions contemplated by this Agreement.
5. CONDITIONS
OF THE INVESTORS’ OBLIGATIONS AT CLOSING. The
obligations of each Investor to purchase the Shares are subject to the
fulfillment or waiver at or before the Closing of each of the following
conditions:
5.1 Representations
and Warranties. The
representations and warranties of the Company contained in Section 3 shall
be
true and correct in all material respects (except for representations and
warranties qualified by materiality or Material Adverse Effect, which shall
be
true and correct in all respects) on and as of the date of the Closing with
the
same effect as though such representations and warranties had been made on
and
as of the date of the Closing.
5.2 Performance.
The
Company shall have performed and complied in all material respects with all
agreements, obligations and conditions contained in this Agreement and any
Ancillary Agreement that are required to be performed or complied with by it
on
or before the Closing.
5.3 Compliance
Certificate. The
President of the Company shall deliver to each Investor at the Closing a
certificate certifying that the conditions specified in Sections 5.1 and 5.2
have been fulfilled.
5.4 Consents.
All
consents, authorizations, approvals and permits of any Person that are required
in connection with the issuance and sale of the Shares pursuant to this
Agreement shall have been duly obtained and be effective as of the
Closing.
5.5 No
Material Adverse Change. Since
_____, there shall have been no material adverse changes to the business,
assets, properties, financial condition or results of operations of the
Company.
5.6 Proceedings.
All
corporate and other proceedings and all documents incidental to the transactions
involved in the purchase of the Shares by the Investors shall be reasonably
satisfactory in substance and form to the participating Investors and their
counsel, and the participating Investors and their counsel shall have received
all such counterpart originals or certified or other copies of such documents
as
the participating Investors and their counsel may reasonably request, including,
without limitation, the following:
(a) Certificates,
as of the most recent practicable dates prior to the Closing, as to the good
standing of the Company issued by the Secretary of State of the State of
___;
(b) The
Company’s Bylaws, as amended to date, certified by the Company’s Secretary as of
the date of the Closing; and
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13
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(c) Resolutions
of the Board of Directors authorizing and approving all matters in connection
with this Agreement and the Ancillary Agreements and the transactions
contemplated hereby and thereby, certified by the Secretary of the Company
as of
the date of the Closing.
5.7 Related
Agreements and Instruments. The
Company shall have delivered the Shares duly executed by the Company to the
Investors.
5.8 Due
Diligence and No Material Adverse Change. The
Company shall have provided each Investor access to information as such Investor
has reasonably requested in connection with its due diligence review and such
Investor shall have concluded its due diligence review of the Company to its
complete satisfaction and shall be reasonably satisfied that there has been
no
material adverse change in the business, operations, financial condition or
prospects of the Company.
5.9 Opinion
of Counsel.
At the
Closing, the Placement Agents shall receive the opinion of ▇▇▇▇▇ ▇▇▇▇▇▇▇ LLP,
counsel to the Company, dated as of the date of the Closing, which opinion
shall
be reasonably acceptable to the Placement Agents' counsel and in the form
attached hereto as Exhibit
C.
6. CONDITIONS
OF THE COMPANY’S OBLIGATIONS AT CLOSING. The
obligations of the Company to each Investor to sell the Shares to such Investor
are subject to the fulfillment or waiver at or before the Closing of each of
the
following conditions:
6.1 Representations
and Warranties. The
representations and warranties of such Investor contained in Section 4 shall
be
true and correct in all material respects on and as of the date of the Closing
with the same effect as though such representations and warranties had been
made
on and as of the date of the Closing.
6.2 Consents.
All
consents, authorizations, approvals and permits of any Person that are required
in connection with the issuance and sale of the Shares pursuant to this
Agreement shall have been duly obtained and be effective as of the
Closing.
7. MISCELLANEOUS.
7.1 Survival.
Except
as
otherwise provided in this Agreement, all representations, warranties, covenants
and agreements contained in this Agreement shall survive the execution and
delivery of this Agreement and the Closing for a period of 18 months.
7.2 Indemnification.
(a) The
Company hereby agrees to indemnify and hold harmless each of the Investors,
their respective affiliates and respective officers, directors, partners,
members, shareholders, employees and agents (collectively, the “Investors’
Indemnitees”)
from
and against any and all losses, claims, damages, judgments, penalties,
liabilities and deficiencies (collectively, “Indemnitee
Losses”),
and
agrees to reimburse the Investors’ Indemnitees for all reasonable out-of-pocket
expenses (including the reasonable fees and expenses of legal counsel), in
each
case promptly as incurred and paid by the Investors’ Indemnitees and to the
extent arising out of or in connection with: (i) any material misrepresentation
or material breach of any of the Company’s representations or warranties
contained in this Agreement or the annexes, schedules or exhibits hereto; or
(ii) any failure by the Company to perform any of the Company’s covenants,
agreements, undertakings or obligations set forth in this Agreement or the
annexes, schedules or exhibits hereto. The
maximum aggregate liability of the Company for claims pursuant to this Section
7.3 shall be the Purchase Price. Notwithstanding
anything to the contrary contained herein, the Company shall not have any
liability for indemnification pursuant to this Section 7.3 until the aggregate
Indemnitee Losses are in excess of 10%
of
Purchase Price,
at which
point the Company shall only be liable for the amount of Indemnitee Losses
in
excess of such amount.
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14
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(b) Promptly
after receipt by any indemnitee seeking indemnification pursuant to this Section
7.3 of written notice of any investigation, claim, proceeding or other action
in
respect of which indemnification is being sought (each, a “Claim”),
the
indemnitee seeking indemnification therefor (an “Indemnified
Party”)
promptly shall notify the party against whom indemnification pursuant to this
Section 7.3 is being sought (the “Indemnifying
Party”)
of the
commencement thereof; but the omission to so notify the Indemnifying Party
shall
not relieve it from any liability that it otherwise may have to the Indemnified
Party, except to the extent that the Indemnifying Party is prejudiced by reason
of such failure. In connection with any Claim as to which both the Indemnifying
Party and the Indemnified Party are parties, the Indemnifying Party shall be
entitled to assume the defense thereof. Notwithstanding the assumption of the
defense of any Claim by the Indemnifying Party, the Indemnified Party shall
have
the right to employ separate legal counsel and to participate in the defense
of
such Claim, and the Indemnifying Party shall bear the reasonable fees,
out-of-pocket costs and expenses of such separate legal counsel to the
Indemnified Party if (and only if): (x) the Indemnifying Party shall have agreed
to pay such fees, out-of-pocket costs and expenses, (y) the Indemnified Party
reasonably shall have concluded that representation of the Indemnified Party
and
the Indemnifying Party by the same legal counsel would not be appropriate due
to
actual or, as reasonably determined by legal counsel to the Indemnified Party,
potentially differing interests between such parties in the conduct of the
defense of such Claim, or if there may be legal defenses available to the
Indemnified Party that are in addition to or disparate from those available
to
the Indemnifying Party, or (z) the Indemnifying Party shall have failed to
employ legal counsel reasonably satisfactory to the Indemnified Party within
a
reasonable period of time after notice of the commencement of such Claim. If
the
Indemnified Party employs separate legal counsel in circumstances other than
as
described in clauses (x), (y) or (z) above, the fees, costs and expenses of
such
legal counsel shall be borne exclusively by the Indemnified Party. Except as
provided above, the Indemnifying Party shall not, in connection with any Claim
in the same jurisdiction, be liable for the fees and expenses of more than
one
firm of legal counsel for the Indemnified Party (together with appropriate
local
counsel). The Indemnifying Party shall not, without the prior written consent
of
the Indemnified Party (which consent shall not unreasonably be withheld), settle
or compromise any Claim or consent to the entry of any judgment that does not
include an unconditional release of the Indemnified Party from all Liabilities
with respect to such Claim or judgment.
(c) In
the
event an Indemnified Party shall have a claim for indemnification hereunder
that
does not involve a claim or demand being asserted by a third party, the
Indemnified Party promptly shall deliver notice of such claim to the
Indemnifying Party. If the Indemnified Party disputes the claim, such dispute
shall be resolved by mutual agreement of the Indemnified Party and the
Indemnifying Party or, failing any such agreement, by order or judgment of
a
court of appropriate jurisdiction.
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7.3 Notices.
All
notices and other communications required or permitted under this Agreement
shall be deemed to have been duly given and made if in writing and if served
either by personal delivery to the party for whom intended (which shall include
delivery by Federal Express or similar nationally-recognized service) or three
(3) business days after being deposited, postage prepaid, certified or
registered mail, return receipt requested, in the United States mail bearing
the
following address for, or such other address as may be designated in writing
hereafter by, such party:
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(a)
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If
to the Investors
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See
Schedule
A
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with
a copy to:
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Cozen
▇’▇▇▇▇▇▇
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The
Army & Navy Club Building
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▇▇▇▇
▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇
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▇▇▇▇▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
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Attn:
F. ▇▇▇▇ ▇▇▇▇▇▇▇, Esq.
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If
to the Company:
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Morlex,
Inc.
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Attn:
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
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▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
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▇▇▇
▇▇▇▇, ▇▇ ▇▇▇▇▇
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With
a copy to:
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▇▇▇▇▇
▇▇▇▇▇▇▇
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Attn:
▇▇▇▇ ▇▇▇▇▇
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▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
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▇▇▇
▇▇▇▇, ▇▇ ▇▇▇▇▇
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fax:
(▇▇▇) ▇▇▇-▇▇▇▇
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7.4 Waiver.
No
delay
on the part of any party hereto with respect to the exercise of any right,
power, privilege or remedy under this Agreement or any of the Ancillary
Agreements shall operate as a waiver thereof, nor shall any exercise or partial
exercise of any such right, power, privilege or remedy preclude any further
exercise thereof or the exercise of any other right, power, privilege or remedy.
No modification or waiver by any party hereto of any provision of this Agreement
or any of the Ancillary Agreements, or consent to any departure by any other
party therefrom, shall be effective other than in the specific instance and
for
the purpose for which given.
7.5 Remedies.
The
rights, powers, privileges and remedies hereunder and under the Ancillary
Agreements are cumulative and not exclusive of any other right, power, privilege
or remedy the parties hereto would otherwise have.
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7.6 Entire
Agreement. This
Agreement and the Ancillary Agreements constitute the entire agreement and
understanding among the Investors and the Company, and supersede all prior
agreements and understandings, relating to the subject matter
hereof.
7.7 GOVERNING
LAW. THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE
STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAW.
7.8 Counterparts.
This
Agreement may be executed in counterparts, each of which shall be deemed an
original but all of which together shall constitute one and the same instrument.
Facsimile signatures shall bind the parties hereto and to the Ancillary
Agreements to the same extent as original signatures.
7.9 Severability.
Any
provision of this Agreement which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement and without affecting the validity or
enforceability of such provision in any other jurisdiction.
7.10 Cross
References. References
in this Agreement to any section are, unless otherwise specified, to such
section of this Agreement.
7.11 Headings.
The
various headings of this Agreement are inserted for convenience only and shall
not affect the meaning or interpretation of this Agreement or any provisions
hereof.
7.12 Exhibits
and Schedules Incorporated. The
exhibits and schedules to this Agreement are incorporated into and constitute
an
integral part of this Agreement.
7.13 Amendment
and Waiver. Except
as
otherwise provided herein, no modification, amendment or waiver of any provision
of this Agreement will be effective unless such modification, amendment or
waiver is approved in writing by the Company and the Majority Investors;
provided,
however,
that to
the extent that any such modification, amendment or waiver does not apply
equally to each Investor, consent to any such modification, amendment or waiver
shall be required from each such Investor that is treated less favorably than
those approving the same to be binding upon such Investor. The failure of any
party to enforce any of the provisions of this Agreement will in no way be
construed as a waiver of such provisions and will not affect the right of such
party thereafter to enforce each and every provision of this
Agreement.
7.14 Liability
for Brokers or Finders. The
Company will pay and/or hold the Investors harmless against the payment of
any
and all Liability for brokerage or finders’ fees or agents’ commissions or any
similar charges in connection with this Agreement or the Ancillary Agreements
incurred, directly or indirectly, as a result of any action taken by the
Company.
7.15 Injunctive
Relief. In
the
event of a breach or threatened breach by any party of any of its
representations, warranties, covenants or other agreements hereunder, any other
party shall be entitled to an injunction or similar equitable relief restraining
such party from committing or continuing any such breach or threatened breach
or
granting specific performance of any action required to be performed by such
party under any such provision.
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7.16 Binding
Effect. Except
as
otherwise provided herein, the terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective successors and
permitted assigns of the parties (including transferees of the Shares). Neither
party shall be permitted to assign any of its rights or delegate any of its
obligations under this Agreement. Nothing in this Agreement, express or implied,
is intended to confer upon any party other than the parties hereto or their
respective successors and permitted assigns any rights, remedies, obligations
or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement. Any attempted assignment or delegation by a party hereto
not
in accordance with this Section 7.16
shall be
void.
7.17 Attorneys’
Fees. If
any
action at law or in equity is necessary to enforce or interpret the terms of
this Agreement or any Ancillary Agreement, the prevailing party shall be
entitled to reasonable attorneys’ fees, costs and disbursements in addition to
any other relief to which such party may be entitled.
7.18 Rights
of Investors. Each
holder of the Shares shall have the absolute right to exercise or refrain from
exercising any right or rights that such holder may have by reason of this
Agreement or any thereof, including without limitation the right to consent
to
the waiver of any obligation of the Company under this Agreement and to enter
into an agreement with the Company for the purpose of modifying this Agreement
or any agreement effecting any such modification, and such holder shall not
incur any liability to any other holder or holders of the Shares with respect
to
exercising or refraining from exercising any such right or rights.
7.19 Exculpation
Among Investors. Each
Investor agrees that no Investor nor the respective controlling persons,
officers, directors, partners, agents, employees or representatives of any
Investor shall be liable to any other Investor for any action heretofore or
hereafter taken or omitted to be taken by any of them in connection with the
Shares.
7.20 Construction. The
parties hereto agree that this Agreement is the product of negotiations between
sophisticated parties and individuals, all of whom were represented by counsel,
and each of whom had an opportunity to participate in, and did participate
in,
the drafting of each provision hereof. Accordingly, ambiguities in this
Agreement, if any, shall not be construed strictly or in favor of or against
any
party hereto but rather shall be given a fair and reasonable construction
without regard to the rule of contra
proferentem.
As used
in this Agreement, the word “including” shall mean “including without
limitation” and the masculine gender shall include the feminine and the neuter
gender.
[SIGNATURES
ON FOLLOWING PAGE]
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IN
WITNESS WHEREOF, the parties have executed this Agreement as of the date first
above written.
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MORLEX,
INC.
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By:
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||||
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Name:
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|
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| Its: | ||||
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INVESTOR
SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT
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INVESTOR:
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By:
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Its:
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By:
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Name:
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Title:
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SCHEDULE
A
INVESTORS
|
Investor Name/Address
|
Payment
|
|||
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Total
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$
|
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EXHIBIT
A
REGISTRATION
RIGHTS AGREEMENT
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22
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EXHIBIT
B
RISK
FACTORS
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23
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EXHIBIT
C
FORM
OF LEGAL OPINION
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24
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